Indonesia's construction industry, which accounts for about ten percent of the country's gross domestic product (GDP), is experiencing turbulent times as the sector is impacted upon by three issues, namely higher minimum wages, higher subsidized fuel prices as well as the depreciating rupiah (against the US dollar). Concerns have arisen that a number of projects cannot be finished due to these issues. Moreover, companies may feel forced to dimiss workers in order to keep a healthy financial balance sheet.

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Attracted by the promising prospects of Indonesia's domestic consumption (with per capita GDP rising strongly), a total of about 100 foreign franchises will enter the Indonesian market in 2013. The most popular investment destination of these franchises is Indonesia's culinary sector. The majority of franchises originate from the United States. Others include those from South Korea, Japan, Australia and Europe. In 2013 so far, more than 170 foreign franchises received approval from the government.

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According to research conducted by Nielsen Indonesia, Indonesia's middle class is the world's most optimistic middle class segment in the second quarter of 2013. Indonesia leads the Nielsen Global Survey of Consumer Confidence and Spending Intentions index with 124 points, followed by the Philippines (121 points) and India (118 points). The average global consumer index stands at 94 points. It is interesting to note that Asian countries top the index. The emerging Asia Pacific region is far above the 94-points average with 105 points.

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The Indonesia Investment Coordinating Board (BKPM) expects that investments in the second quarter of 2013 will grow by 25 percent to IDR 96.13 trillion (USD $9.6 billion) compared to Q2-2012. Although Indonesia's economic growth is under threat of slowing down to below an annual growth rate of six percent, the government agency still believes that total investments in 2013 can meet the target of IDR 390 trillion (USD $39 billion). Investments in Q1-2013 were recorded at IDR 93 trillion.

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Indonesia's government will make a new government regulation that foresees the minimum wage increase in all 33 provinces will be kept below 20 percent in 2014. This new rule is directed to labor-intensive industries, including Indonesia's small and medium businesses. The limitation of the regional minimum wage increase to 20 percent is much lower than the demand from Indonesia's labor associations, which requested minimum wage increases up to 50 percent.

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About a week ago, Indonesia's highly optimistic minister of Industry, MS Hidayat, stated that Indonesia's non oil & gas manufacturing sector would grow around 9 percent in 2013. Now, however, the minister has felt the need to revise this figure down to 6.5 percent after meeting several other ministers. Issues that will limit growth of the manufacturing sector are higher minimum wages, the planned rise in subsidized fuel prices, and the lack of support through bank credits.

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According to a research report released by the Nielsen Company, Indonesian consumers are currently the world's most optimistic consumers. The report, based on a survey that was conducted between 17 February and 8 March, indicates global consumer confidence in 58 countries. It is interesting to note that countries that scored highest in the survey are mostly from Asia, particularly the Asia Pacific. Indonesia now has a confidence index of 122 points (up five points from Q4-2012).

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Today, Statistics Indonesia (Badan Pusat Statistik, abbreviated BPS) released Indonesia's inflation figures for the month March 2013. According to Suryamin, head of BPS, the country's inflation last month reached the level of 0.63 percent, the highest March inflation level in five years. Particularly food prices drove the inflation rate upwards. Year-on-year inflation now stands at 5.90 percent, while year-to-date inflation (January-March) is 2.41 percent.

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In late 2012, the local Jakarta government decided to increase the monthly minimum wage to IDR 2.2 million (US $229), a 44 percent increase from the previous standard. This rigorous change was one of the first policy changes of the newly elected Joko Widodo administration. Joko Widodo (often referred to as Jokowi) enjoys huge popular support and, similar to Barrack Obama at the start of his reign, provides hope to Jakartans, who have high expectations of his administration.

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Today, Statistics Indonesia (BPS), a non-departmental government institute, stated that the inflation rate of January increased due to the government's decision to raise electricity tariffs and due to massive floods in Jakarta and other cities. January's headline inflation is 1.03 percent. The year-on-year inflation rate now stands at 4.57 percent; still within Indonesia's Central Bank's target of 4.5 ±1 percent.

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In previous weeks we discussed the new Ministry of Manpower regulation number 78 of 2015 concerning Wage (New Regulation). We explained the regulations set by the New Regulation related to the wage structure, non-wage and calculation of wage of employees in Indonesia. We also discussed the regulations regarding the payment of wage during absence of employees in Indonesia. In the column of this week we discuss the regulations set by the New Regulation regarding minimum wages and the imposition of fines by the employer to the employee.

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After China and India, Indonesia is currently the third most important investment destination for Japanese investments in the manufacturing sector. In 2011, Indonesia - Southeast Asia's largest economy - was still ranked number five on that list. However, in recent years the country managed to surpass Thailand and Vietnam. This fact indicates the important link between Indonesia and Japan. The chief executive officer of the Japan Bank for International Cooperation (JBIC), Hiroshi Watanabe, confirmed these findings.

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